Revenue Recognition

Comparative Results

The following tables present our reported results under ASC 606 and a reconciliation to results using the historical accounting method:



	Year Ended December 31, 2018
	Reported Balances			Impact of ASC 606		ASC 605 Historical Adjusted Balances
	(Dollars in millions, except per share amounts and shares in thousands)
Operating revenue	$	23,443		39		23,482
Cost of services and products (exclusive of depreciation and amortization)	10,862			22		10,884
Selling, general and administrative	4,165			71		4,236
Interest expense	2,177			(9	)	2,168
Income tax expense	170			(12	)	158
Net loss	(1,733		)	(33	)	(1,766	)

BASIC AND DILUTED LOSS PER COMMON SHARE
BASIC	$	(1.63	)	(0.03	)	(1.66	)
DILUTED	$	(1.63	)	(0.03	)	(1.66	)
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
BASIC	1,065,866			—		1,065,866
DILUTED	1,065,866			—		1,065,866

The following table presents a reconciliation of certain consolidated balance sheet captions under ASC 606 to the balance sheet results using the historical accounting method:



	As of December 31, 2018
	Reported Balances			Impact of ASC 606		ASC 605 Historical Adjusted Balances
	(Dollars in millions)
Other current assets	$	918		(172	)	746
Other long-term assets, net	1,060			(112	)	948
Deferred revenue	2,375			71		2,446
Deferred income taxes, net	2,395			(131	)	2,264
Other long-term liabilities	1,099			147		1,246
Accumulated deficit	(1,643		)	(371	)	(2,014	)

Disaggregated Revenue by Service Offering

The following tables provide disaggregation of revenue from contracts with customers based on service offerings for the year ended December 31, 2018, respectively. It also shows the amount of revenue that is not subject to ASC 606, but is instead governed by other accounting standards.



	Year Ended December 31, 2018
	Total Revenue		Adjustments for Non-ASC 606 Revenue ⁽⁸⁾		Total Revenue from Contracts with Customers
	(Dollars in millions)
Business segment
IP and Data Services ⁽¹⁾	$	6,971	—		6,971
Transport and Infrastructure ⁽²⁾	5,356		(569	)	4,787
Voice and Collaboration ⁽³⁾	4,401		—		4,401
IT and Managed Services ⁽⁴⁾	621		—		621
Total business segment revenue	17,349		(569	)	16,780

Consumer segment
IP and Data Services ⁽⁵⁾	308		(33	)	275
Transport and Infrastructure ⁽⁶⁾	2,892		(213	)	2,679
Voice and Collaboration ⁽³⁾	2,171		—		2,171
Total consumer segment revenue	5,371		(246	)	5,125

Non-segment revenue
Regulatory Revenue ⁽⁷⁾	723		(723	)	—
Total non-segment revenue	723		(723	)	—

Total revenue	$	23,443	(1,538	)	21,905

Timing of Revenue
Goods and services transferred at a point in time					$	230
Services performed over time					21,675
Total revenue from contracts with customers					$	21,905



(1	)	Includes primarily VPN data network, Ethernet, IP, video and ancillary revenue.
(2	)	Includes primarily broadband, private line (including business data services), colocation and data centers, wavelength and ancillary revenue.
(3	)	Includes local, long-distance and other ancillary revenue.
(4	)	Includes IT services and managed services revenue.
(5	)	Includes retail video revenue (including our facilities-based video revenue).
(6	)	Includes primarily broadband and equipment sales and professional services revenue.
(7	)	Includes CAF Phase I, CAF Phase II, federal and state USF support revenue, sublease rental income and failed-sale leaseback income.
(8	)	Includes regulatory revenue, lease revenue, sublease rental income, revenue from fiber capacity lease arrangements and failed sale leaseback income, which are not within the scope of ASC 606.

Customer Receivables and Contract Balances

The following table provides balances of customer receivables, contract assets and contract liabilities as of December 31, 2018 and January 1, 2018:



	December 31, 2018		January 1, 2018
	(Dollars in millions)
Customer receivables⁽¹⁾	$	2,346	2,504
Contract liabilities	860		904
Contract assets	140		145



(1	)	Gross customer receivables of $2.5 billion and $2.7 billion, net of allowance for doubtful accounts of $132 million and $155 million, at December 31, 2018 and January 1, 2018, respectively.

Contract liabilities are consideration we have received from our customers or billed in advance of providing goods or services promised in the future. We defer recognizing this consideration as revenue until we have satisfied the related performance obligation to the customer. Contract liabilities include recurring services billed one month in advance and installation and maintenance charges that are deferred and recognized over the actual or expected contract term, which ranges from one to seven years depending on the service. Contract liabilities are included within deferred revenue in our consolidated balance sheet.

The following table provides information about revenue recognized for the year ended December 31, 2018:



	(Dollars in millions)
Revenue recognized in the period from:
Amounts included in contract liability at the beginning of the period (January 1, 2018)	$	295
Performance obligations satisfied in previous periods	—

Performance Obligations

As of December 31, 2018, our estimated revenue expected to be recognized in the future related to performance obligations associated with customer contracts that are unsatisfied (or partially satisfied) is approximately $6.9 billion. We expect to recognize approximately 83% of this revenue through 2021, with the balance recognized thereafter.

We do not disclose the value of unsatisfied performance obligations for contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed (for example, uncommitted usage or non-recurring charges associated with professional or technical services to be completed), or contracts that are classified as leasing arrangements that are not subject to ASC 606.

Contract Costs

The following table provides changes in our contract acquisition costs and fulfillment costs:



	Year Ended December 31, 2018
	Acquisition Costs			Fulfillment Costs
	(Dollars in millions)
Beginning of period balance	$	268		133
Costs incurred	226			146
Amortization	(172		)	(92	)
End of period balance	$	322		187

Acquisition costs include commission fees paid to employees as a result of obtaining contracts. Fulfillment costs include third party and internal costs associated with the provision, installation and activation of telecommunications services to customers, including labor and materials consumed for these activities.

Deferred acquisition and fulfillment costs are amortized based on the transfer of services on a straight-line basis over the average customer life of 30 months for consumer customers and 12 to 60 months for business customers and amortized fulfillment costs are included in cost of services and products and amortized acquisition costs are included in selling, general and administrative expenses in our consolidated statement of operations. The amount of these deferred costs that are anticipated to be amortized in the next twelve months are included in other current assets on our consolidated balance sheets. The amount of deferred costs expected to be amortized beyond the next twelve months is included in other non-current assets on our consolidated balance sheets. Deferred acquisition and fulfillment costs are assessed for impairment on an annual basis.